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Tip of the iceberg, or too much too soon

Agriculture.com Staff 10/20/2006 @ 1:31pm

The recent price rally in the grain markets, led by a strong surge in wheat, has not only caught most off guard, but the move for corn has been faster and sooner than expected. Sooner in the sense that most see a friendly outlook for corn based on long-term demand, but moving into harvest, there was not much of an expectation for a rally in October. The question now: Is the recent jump in prices a sign of things to come, or has the market already run its course?

There are many factors that can drive markets. Perception is perhaps the biggest short-term mover. The perception of tight inventory for next year has the market rallying this year. Fundamentally, the corn production for 2006 is not much different than the 2007 crop, but growing demand and the need for bigger crops next year has prices at new contract highs. In the long run, fundamentals generally guide price direction and establish a price range. Currently, there is not a shortfall of corn supply. However, due to shrinking supplies, the market is anticipating that a rationing effect may have to occur.

The balancing act for farmers is to recognize that, as the market offers opportunities based on long-term price appreciation and value, it is imperative that you either have a strategy to be prepared to sell, or sell a portion of your crop on value. Historically, the corn market spends very little time above $3.00 per bushel.

How does this apply to you? Our point is that the picture could be turned upside down six or nine months from now. The perception could change to increased acres, a record projected yield and stabilizing ethanol demand. At this stage of the game, no one believes that scenario is likely. However, few anticipated an 80-cent rally right into the heart of harvest this year.

It is too early to tell what next year will bring. Bulls argue that the grain markets are just at the beginning of a major bull market. Demand is growing faster than supply. History suggests that many of the projected bull markets fizzle. Are you ready for either?

If you have any questions or comments, please contact Top Farmer at 1-800-TOP-FARM, ext. 129.

The recent price rally in the grain markets, led by a strong surge in wheat, has not only caught most off guard, but the move for corn has been faster and sooner than expected. Sooner in the sense that most see a friendly outlook for corn based on long-term demand, but moving into harvest, there was not much of an expectation for a rally in October. The question now: Is the recent jump in prices a sign of things to come, or has the market already run its course?

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